THE IMPACT OF CROWD-FUNDING ON INDIVIDUALS RECEIVING PUBLIC BENEFITS
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA
People often utilized an online device known as “crowd-funding” to raise money for certain purposes. Popular online websites include GoFundMe, Indiegogo, and Crowdrise. These websites allow users to fundraiser for individuals and personal causes. They are often very effective ways to raise money. On other occasions, crowd-funding is done outside of online sites, such as 5k runs, potluck dinners, etc. Typically, the funds from these events are deposited into a “trust” in a bank for the benefit of the ultimate beneficiary.
Sometimes the beneficiary of the crowd-funding is an individual receiving means-tested public benefits such as SSI, Medicaid, Food Stamps (SNAP), heating assistance (LIHEAP), federally-assisted housing (Section 8), pharmaceutical assistance, etc. Many of these benefits have income and asset limits. For example, an individual receiving SSI and Medicaid can only have $2,000 of assets in his/her name. If the individual benefits from crowd-funding and receives more than $2,000, the individual will be over-resourced and will lose those benefits.
There are five alternatives for the individual receiving means-tested public benefits:
- Accept the Money. This option means that the beneficiary will accept the money and forego pubic benefits. Before making this decision, an analysis should be made as to the value of the public benefits being lost. For example, in New Jersey the maximum SSI payment is $766.65 per month. Over a year, this is $9,199.80. For five years, the total would be $45,999.00. Actually, it would be a little more, because the SSI payment is indexed to inflation. What is the cost of replacing Medicaid including premiums for private insurance, deductibles, copays, etc.?
- Spend Down. If the amount realized through the crowd-funding is not large, the individual may be able to spend the money down in the month received. There would be an overpayment for that month, but as long as the money is spent before the first day of the next calendar month, benefits would not be lost. Typical spend down items include: cars, houses, home improvements, debt repayment, clothing, etc.
- Transfer the Funds. If the individual with disabilities transfers the funds received from the crowd-funding to a third party for less than fair market value, there is a transfer of asset penalty. For all practical purposes, the transfer of asset penalty for SSI is three years. During that three years, SSI is lost and Medicaid is lost as well. This is not usually a good solution.
- Special Needs Trust. A Special Needs Trust will protect the individual’s public benefits, because the money in the Special Needs Trust is not counted as an asset. If the amount raised is relatively small, i.e., $150,000 or less, consideration should be given to depositing the money in a Pooled Trust administered by a non-profit disability organization. If the amount exceeds $150,000, the money should be deposited in a standalone Special Needs Trust administered by a professional trustee.
If the money from the crowd-funding is payable to someone other than the individual with the disabilities, such as the parents, then the parents can establish a Third Party Special Needs Trust and deposit the amount raised into that Trust. These trusts are more flexible to administer and do not require a Medicaid payback on death.
If the money from the crowd-funding is payable to the individual receiving public benefits, then a First Party Special Needs Trust is required. Again, the money in the trust is not counted as an asset of the beneficiary, but there are strict rules. One rule is that the money can be used only for the sole benefit of the individual with disabilities. Another is that any money remaining in the trust on the death of the beneficiary must be first used to repay Medicaid.
- ABLE Account. An ABLE account is an account that can be managed by the individual with disabilities or a family member. There is a limit of one account per individual. The maximum contribution in any one calendar year is the amount of the federal gift tax annual exclusion, which for 2017 is $14,000. ABLE accounts are a very useful tool, because the individual can control some of the assets. In addition, monies paid from the ABLE account for food and shelter do not impact the amount of the SSI payment.
Establishing the Special Needs Trust
So long as the individual with disabilities is not the creator of the campaign and the funds from the crowd-funding campaign have not been paid to the individual, a Third Party Special Needs Trust can be established. If the funds have been paid to the individual, a First Party Special Needs Trust must be established. The best situation is to have the funds payable from the crowd-funding campaign directly to the trustee of the Third Party Special Need Trust. If the beneficiary is the creator of the crowd-funding campaign, the funds will belong that individual and a Self-Settled Special Needs Trust will be required. If a third party is the creator of the campaign, proceeds can be paid to a Third Party Special Needs Trust. Prior to launching the campaign, the creators must understand these ramifications. At the time the trust is funded, the beneficiary, the trustee, and any attorney involved in drafting the trust should meet and determine what immediate cash needs the beneficiary has and develop a monthly budget. If possible, a credit card should be obtained for the beneficiary. The beneficiary can then charge budget items to the credit card and forward the credit card bill and receipts to the trustee on a monthly basis. If items are required that are not on the budget, the beneficiary must contact the trustee in advance. For a Third Party Special Needs Trust, it is recommended that someone other than the beneficiary establish the trust. This could be a parent, a family member or friend. The establishor simply signs the trust document. The trustee of a Special Needs Trust, whether Third Party or First Party, should always be a professional or a disability organization. Administration of Special Needs Trusts is complex. First Party Special Needs Trusts receive a considerable amount of oversight from the State Medicaid Agency.